It’s become something of a reliable attention-getting headline that Millennials struggle to get ahead and create wealth, despite six-figure salaries, and even when there are dual incomes. The focus is usually on the spending and lifestyle habits of a new generation coming into its own. However, the data tells a much different story.
In 2016, the total wealth for the median family headed by someone born in the 1980s was 34 percent lower than what previous generations experienced at the same age. That is changing, though. Over the last three years, Millennials have narrowed that gap to 11%. They are still behind, and since these are older Millennials, they have less time to make up the difference further. Fortunately, some positive life/work trends can help, and the prospect of a strong economy coupled with an evolving investment management landscape may help this generation leap ahead.
New Ways to Track Spending
Making and keeping a budget is the core of creating wealth. No one really likes taking the time to itemize spending, but it’s important. If you don’t have anything left after expenses, you won’t have anything to invest and grow. That’s not a new concept, but that doesn’t mean budgeting has to be onerous, and it doesn’t have to make you feel deprived.
Technology has simplified budgeting, but it has also helped bring some of the principles of behavioral finance – why you do what you do with money – into the game. Budgeting software has developed to the point that it can zero in on where and what an individual struggles with – and provide tools to help fix the problems and get budgeting on track.
There are free apps, like Mint, that provide a comprehensive look at organizing your finances. If you want to get a little deeper, apps like You Need A Budget (YNAB) can change your view of how you spend. The process works under the principle of assigning every dollar a job, and one of the goals is to help you get out of debt. If overspending is a problem, some apps are more suited to helping with that. If you are looking to save money and spend smarter, you don’t need to tackle that goal alone. With a bit of online research, you’ll be able to find some budget tech that is the best suited for your situation.
Minimizing the Big Expenses
For most people, by far, the biggest monthly expense is housing, whether you own or rent. Housing was also the most constrained – living in expensive communities to be close to knowledge-worker jobs was just the reality. It’s different now. The pandemic has normalized working-from-home to the point where many remote jobs will likely remain long after the COVID has receded.
That gives people options to live in different, cheaper communities that can be cheaper in a few ways. It can result in lower state and local taxes. It can also result in finding communities that can offer an amenity set that includes great public (or private) schools and other benefits that can lower lifestyle costs. Of course, it’s also helpful to incur those expenses when interest rates are rock bottom.
Investing Is Now Investor-Centric
Today’s investors have a different landscape in so many ways than even a short 5-10 years ago. For better or worse, there is increased access to expanded investment options, such as alternatives that used to only be able to be deployed by institutions and ultra-high net worth investors. In addition, the growing ESG field is starting to better enable people to use investments to support values.
The biggest change, however, is in the industry itself. Over the last ten years, we’ve seen a shift towards a fiduciary model of investment management that requires the advisor to put the client’s best interests first. This has given rise to a trend of smaller, client-centric independent investment advisors who can offer comprehensive planning tailored to client’s needs and where they want to go – not just to the bottom line of their assets.
Wrapping it Up
The Millennial generation has faced some challenges and earned themselves some chiding when they first came into the workforce. They continue to blaze new trails and redefine their lifestyles and what’s important to them.
The market’s recent performance, a recovering economy, increasing wages, and rock bottom interest rates can help decrease the wealth gap even further. Individually, everyone, not just Millennials, should be taking a fresh look at your financial picture and options in the wake of COVID-19 and plan for a better future.
If you need an outside perspective, we are happy to talk.
This material is provided as a courtesy and for educational purposes only. Investing involves risk including loss of principal. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation. This article contains links to articles or other information that may be contained on a third-party website. River City Wealth Management is not responsible for and does not control, adopt, or endorse any content contained on any third-party website. The information contained herein is derived from sources deemed to be reliable but cannot be guaranteed. Past performance is not indicative of future results.